Interest rate cap failure buoys MasterCard, Visa

The failure of an amendment that would have allowed caps on credit card interest rates kept MasterCard and Visa stocks afloat in Thursday trading while the broader markets dropped sharply.

The amendment, proposed by Rhode Island Sen. Sheldon Whitehouse, would have allowed each state to impose interest rate limits on out-of-state lenders. That would have capped the rates charged by banks that issue credit cards with the MasterCard and Visa logos.

The fallout from such limits would most likely have been banks issuing fewer cards, and therefore lower revenue for the two payment processing giants. MasterCard and Visa earn money through the fees charged on transactions.

“It’s a little relief from the Whitehouse amendment going down,” said FBR Capital Markets analyst Scott Valentin. Investors were nervous about the possibility of the amendment passing, after another amendment seen as an unlikely win made it through last week. That one, sponsored by Sen. Dick Durbin, D.-Ill., could lead to potential limits on the fees charged for using debit cards.

“There was a lot of negative sentiment on the group given the Durbin amendment,” agreed Janney Capital Markets analyst Thomas McCrohan. “That really caught a lot of people flatfooted.”

Late Thursday, the impasse for the wider financial overhaul bill was broken in the Senate, clearing the way for final passage.

The bill writes new rules for complex securities blamed for helping precipitate the 2008 economic crisis and creates a new consumer protection agency. It also calls for new ways to watch for risks in the financial system and makes it easier to liquidate large financial firms that are failing.

After the Senate vote, the bill must be reconciled with the House version.

Valentin said he expects the Durbin amendment to make it through conference committee. He noted that Visa CEO Joseph Saunders said the company doesn’t expect any potential debit card fee restrictions to have a big negative impact on the company. Visa has a much larger share of the U.S. debit card market than MasterCard.

“This is the first time I’m delighted to have lower market share in something,” said MasterCard President and Chief Operating Officer Ajay Banga at a conference on Wednesday. Banja will become CEO on July 1.

With major indexes all down more than 2 percent in late afternoon trading Thursday, Mastercard shares gained $6.46, or 3.2 percent to $208.91.Visa shares added 71 cents to $73.68.